Tweeting About Trading

By David Gaffen

Steven Russolillo reports:

Traders looking for stock investment ideas are increasingly turning to a new application linked to the popular social networking tool Twitter.

StockTwits.com, which enables people to share information in real time, has acquired 11,000 registered users since its launch in October, and the number is expected to grow to 30,000-50,000 by year’s end. The site, a new place for bloggers and traders to build a following, aims to provide investors with an alternative to traditional online chat rooms and message boards.
“This is the next evolution of investors communicating with each other,” says Howard Lindzon, co-founder of StockTwits and general partner of Lindzon Capital Partners, a hedge fund he started in 1998. Mr. Lindzon envisions a “real-time human ticker” of people sharing information about the market.

While people still flood thousands of chat rooms and bulletin boards, such as the message boards on Yahoo Inc.’s finance page, these boards can be cluttered with spam. StockTwits — which is free to users now, but will begin charging about $20 per month starting next month — looks to eliminate noise and provide users with more direction and insightful information.

Anyone can post whatever they want on StockTwits, but in order to develop a following, the messages need to be useful to other StockTwits users. Once users prove their relevance and attract more followers, they gain more prestige in the online community.

“StockTwits can be a reputation maker when we find someone who is contributing valuable content,” said Roger Ehrenberg, managing partner of IA Capital Partners, which led a round of financing in December that raised approximately $930,000. “We can point people in that direction and say this is someone really worth watching.”

The site has a growing list of approximately 60 users that it recommends to new people who join StockTwits. These users have large followings and have a proven track record of consistently contributing to StockTwits.

“I think we found a really democratic way to get the good voices on top, faster,” Mr. Lindzon said, noting that those who are just proselytizing or rumor-mongering won’t develop a following. “If they’re good, they’re going to become somewhat of a celebrity. So now there’s this added responsibility that they feel to continue to perform.”

Just like Twitter, StockTwits users submit messages, in 140 text-based characters or less, that range from their most recent trades to the top news stories of the day.

Getting started on StockTwits is fairly simple. A person can sign up for a Twitter account, and then any message – or “tweet” as its referred to among social media enthusiasts – will show up on StockTwits, as long as it’s properly coded with a dollar sign next to the stock symbol. People can view the entire StockTwits stream, or they can customize it to fit their needs by following the top-recommended users or messages that pertain only to stocks in their portfolio.

StockTwits, just like Twitter, is trying to figure out how to generate revenue. The site, which contains relatively few ads, has a distribution deal with Bloomberg News in which some of the top-recommended commentary on StockTwits is filtered through Bloomberg terminals. The company is also discussing different distribution deals with other vendors.

StockTwits doesn’t anticipate having to raise more capital for at least another two years and expects to be cash flow positive by the third quarter of this year, Mr. Lindzon said.

The group of investors in the startup includes Gerry Campbell, founder of Frequency Capital Advisory LLC and Todd Stottlemyre, former Major League Baseball pitcher turned day-trader and active StockTwits participant.

While StockTwits has used Twitter’s platform free of charge since October, Mr. Lindzon and co-founder Soren Macbeth are debating whether to transfer the product off of Twitter and onto an open platform. “Our audience doesn’t care about Twitter,” Lindzon said. “They’ll go wherever we take the product.”

He’s considering an open network that allows users freer reign than just posting 140-character messages. StockTwits also plans to shift from an ad-driven model to a paid service, charging users approximately $20 a month for the service.

“We’re trying to keep the integrity on the platform we built behind it, but we understand that certain people will want choices and since people will be paying for the service, we’ll let our community decide the direction,” he said.

The decision to switch from a free model to a pay-for-subscription based service, which begins March 1, could be met with trepidation among users, especially amid the current economic slowdown. Paul Kedrosky, strategist with Ten Asset Management and author of the financial blog Infectious Greed, is an active StockTwits user. But since he isn’t an active trader, he said he wouldn’t be interested in paying a monthly subscription fee.

“I’m not representative of the group they’d be targeting, but their growth shows that people are passionate about it, which is proven by the speed at which it’s being adopted,” Mr. Kedrosky said.

But Mr. Lindzon said he’s confident people will be willing to fork over money for a service that they originally used for free. “Traders will pay for data. It’s a segment of people who are willing to pay for valuable services,” he said. “It’s also not hard to sell ideas about money during turbulent times, especially when you can follow some of the best traders in real time.”

Comments (5 of 7)

I wonder if they have this right... it seems like people are on there to get noticed, not to follow others. Important distinction. Kedrosky (who says in the article he wouldn't pay for the service) might be more representative than he thinks.

10:33 am February 5, 2009

Trader Ed wrote :

I have signed up for Stock Twits....looks good so far. I am also on http://www.TraderPlanet.com and the membership there has been climbing.

7:41 am February 4, 2009

Peter Piper Picked a Peck of Pickles wrote :

Is Oz on the board at 'Twits"? If not, they should hire him asap he's running wot at about 95% correct as of today.

10:39 pm February 3, 2009

peter wrote :

interesting video presentation by StockTwit's lead investor, Roger Ehrenberg of IA Capital Partners, on what entrepreneurs can learn from failure to succeed in future ventures:

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